For this video we will be focusing on a system which is called the “Bad Neighbor”.

I originally created this model based off the theory that teams in the American League have an advantage of those in the National League when the American league team is home.

I originally created this model based off the theory that teams in the American League have an advantage of those in the National League when the American league team is home.

If you don’t know much about baseball, in the National League when its time for the pitcher to go up and hit, the pitcher does it.  In the American League, when it’s time for the pitcher to go up and hit, they have a guy who does that.  

Now because of this small, but pretty significant difference American League and National League teams are built differently.  American league teams usually have one or sometimes two really good hitters that don’t play the field, but can really crush the ball.  

This becomes a larger factor when they play each other because if you are playing an interdivisional game and you are in your home stadium, the teams play by your rules.  So this is where the theory for this idea comes from. Unfortunately, like a lot of ideas in the beginning, it’s not a lucrative investment idea on its face. When National League teams play in American league stadiums, the results are not great. While there is some profit inside such a simple theory, for someone like me, who tries to maintain a certain level or risk aversion, I would not touch it with a ten foot pole. 

The good news is that we spend about 10 days in the ScoreMetrics lab digging into this idea and testing different rules and what we came up with is actually pretty darn good.  

On its own, Bad Neighbor had an ROI of a little over 38% last year and if you would have invested just $1000 in this model four years ago and compounded your investment yearly, you would have almost $18,000 right now!  ScoreMetrics is about diversifying yourself inside this method and using a system like this, that only has two losing seasons in the last ten years, is part of that method. 

Let’s take a look at the 5 year ROI’s for this system

Investment Strategy.  

Now normally in this part of the video I will outline our investment strategy and talk about the historical risks and rewards that each system can give us.  

Now, while this system has only had two losing years of the model, there is still some volatility and and of course, some risk involved.  As with all of our systems, measuring the risk is done by finding the worst drawdown period over the time of the model and padding that to compensate for future volatility.  

Anyway, this is a streaky system with its worst drawdown being 7 trades…so we pad our investment a bit and say that 10 is our max draw down.  This protects us against the system having a dry period or bad run that we have not seen in previous models

So the ScoreMetrics system recommends a 2 unit allocation for each play in the “Bad Neighbor” system and a stop loss is 20 units, so if we reach the point of hitting 20 units of loss, this system stops for the rest of the season.  

This system btw will normally only send out an average of about 36 alerts a year

Now let’s talk about the actual system itself and give you all the information, so if you want to start looking for these alerts on your own, you can.  

The Rules

First of all, this would be a game played during the regular season.  I do have packages that take care of the post season, but the patterns are totally different, as well as the analytics used to find those patterns. DO NOT try to use these during the post season.  When I use the same models under those circumstances we do not get positive results.  

What we do next is try to find value in our trades. Just like any investment, price matters.   The closing moneyline needs to fall between -146 and 146 so we are either taking small underdogs or small favorites.  DO NOT invest in a price that ScoreMetrics does not recommend. If you do, you do so you are putting your money at an even bigger risk than a normal Sports Trading Investment.  

Let’s go back to our starting theory.  Our team will be an American League team.  Any American League team….and they will be the home team.  They are going to be playing a National League team in this trade.  

If you don’t know which teams are American League and which are National League, it’s not that hard to figure it out.  You can simply look on ESPN or another sports website and look for an American League schedule. That will give you all the games that American league teams play.  

The last part of this pattern is really the most important one.  The National League team? They need to have lost the prior game. Just one game before. Not 2, 3, 4 or more games.  Just one game.